Minimize Your Austrian Taxes: Strategies For Savvy Citizens

Austria's tax system is progressive, with rates ranging from 0% to 55% depending on income. This means that the rate of taxation increases the more you earn. All individuals residing in Austria are subject to Austrian income tax on their worldwide income, including income from trade or business, profession, employment, investments, and property. Non-residents are taxed on income from Austrian sources only. Austria also levies excise taxes on certain luxury and consumer goods, such as tobacco, alcoholic beverages, and energy products like petroleum. To reduce your tax liability in Austria, you can take advantage of various tax deductions, including those for single earners, single parents, pensioners, transport expenses, and professional and personal expenses. Additionally, Austria has double taxation agreements with over 80 countries, including the United States, to prevent taxpayers from paying tax on the same income in two different countries. Understanding your tax residency status and obligations is crucial, especially for US citizens or permanent residents, as they may be subject to both US and Austrian tax laws.

Understand your tax residency status

Understanding your tax residency status in Austria is crucial as it directly impacts your tax obligations and the amount of tax you are liable to pay. If you are a US citizen or permanent resident living in Austria, you may be subject to both US and Austrian tax laws. This means that even if you are paying taxes in Austria, you must still file a US tax return and report your worldwide income.

In general, you are considered a tax resident in Austria if you have a permanent home in the country or if you spend more than 183 days in Austria during a calendar year. These days do not have to be consecutive, as long as they fall within the same 12-month period. If you have lived in Austria for less than six months, you are likely to be considered a non-resident for tax purposes. To qualify as a non-resident, you must spend less than 183 days in the country during a calendar year and not have a permanent home in Austria.

Non-residents are taxed only on their Austrian-source income and are not taxed on foreign income. They are subject to income tax on Austrian-source income at normal rates, including a fictitious income increase of 10,888 euros. Residents, on the other hand, are taxed on their worldwide income, including income from trade or business, profession, employment, investments, and property. Both residents and non-residents in Austria benefit from several tax deductions and increased thresholds. For instance, single-earner and single-parent deductions, pensioner deductions, and transport deductions are available for both groups.

If you are unsure about your tax residency status, it is recommended to seek guidance from a tax professional. They can advise you on your specific situation and help you understand your tax obligations. Additionally, you may need to provide documentation such as proof of residence, work permits, or other relevant documents to determine your residency status accurately.

Deduct professional and personal expenses

If you are a resident of Austria, you are liable to pay tax on your income. This includes income from trade or business, profession, employment, investments, and property. However, there are several ways to reduce your tax burden by deducting professional and personal expenses.

Firstly, it is important to understand the tax system in Austria. The country has a progressive tax system, with rates ranging from 0% to 55%, depending on income. This means that the more you earn, the higher the rate of taxation. Salaried employees and pensioners pay wage tax (known as "Lohnsteuer"), while self-employed individuals pay income tax ("Einkommensteuer"). The tax brackets are the same for both groups, but the collection methods differ. As a resident, you will also be subject to social security tax, which includes health insurance, pension insurance, unemployment insurance, and accident insurance. These are typically paid by both employees and employers.

Now, let's discuss how you can deduct professional and personal expenses to lower your tax liability:

• Standard Deductions: Austria offers several standard deductions that can reduce your taxable income. These include the single-earner deduction, single-parent deduction, pensioner deduction, and transport deduction. For instance, the single-earner and single-parent deductions for 2025 are €601, with an additional €212 for the second child and €268 for subsequent children. The pensioner deduction has two options: a standard deduction of €1,002 or a higher amount of €1,476. The transport deduction allows you to deduct €487 from your taxable income.
• Professional Expenses: If you are self-employed or a freelancer, you may be able to deduct various professional expenses. These can include home office expenses, such as a portion of your rent or mortgage interest, utility costs, and office supplies. You may also be able to deduct expenses related to your profession, such as tools, equipment, or continuing education courses. Keep records of all your business-related expenses, as these can add up and significantly reduce your taxable income.
• Personal Expenses: Certain personal expenses are also tax-deductible in Austria. For example, you can deduct social insurance contributions, such as the amounts you pay for sickness insurance, unemployment insurance, and pension insurance. Additionally, if you pay trade union contributions or contributions to religious communities (e.g., church tax), these can also be deducted from your taxable income.
• Special Expenses: There are also special expenses that may be tax-deductible, depending on your situation. For instance, if you have high medical or care expenses, you may be able to claim these as extraordinary burdens ("außergewöhnliche Belastungen"). Similarly, if you are paying interest on a student loan or have expenses related to job searches or relocation, these may be deductible under certain circumstances.

Remember, it is essential to keep accurate records of all your income and eligible expenses. Consult a tax professional or refer to official sources for the most up-to-date information on tax laws and eligible deductions, as they may change over time.

Avoid double taxation with the US

The US and Austria have a tax treaty in place to prevent double taxation and provide clarity on tax obligations for expats. This treaty is crucial for Americans living in Austria and Austrians who have US-sourced income. It determines which country has the primary right to tax various types of income, such as salaries, dividends, and capital gains. The treaty also includes provisions for tax relief, such as foreign tax credits and exemptions, to prevent the same income from being taxed in both countries.

The US-Austria totalization agreement helps prevent double social security taxation. This agreement ensures that workers do not have to pay social security taxes to both countries on the same earnings, preventing financial burdens. It also helps determine which country's social security system applies based on factors such as the length of employment and residency.

If you are a US citizen or permanent resident living in Austria, you may be subject to both US and Austrian tax laws. It is important to understand your tax obligations and ensure compliance with both sets of regulations. As a US citizen or resident, you must file a tax return with the Internal Revenue Service (IRS) annually, regardless of your place of residence.

If you pay income tax in Austria, you can use Form 1116 (Foreign Tax Credit) to claim a credit on your US tax return. Additionally, FBAR (FinCEN Form 114) is required if the combined value of foreign bank accounts exceeds $10,000 during the tax year. Form 8938 (FATCA report) is necessary if foreign assets exceed $200,000 on the last day of the tax year or $300,000 at any point ($400,000 and $600,000 for married taxpayers filing jointly).

Claim allowances and special expenses

If you are a tax resident in Austria, you must pay tax in the country. To be considered a tax resident, you must have a permanent home in the country or spend more than 183 days in Austria during a calendar year.

When it comes to claiming allowances and special expenses in Austria, there are several deductions and tax benefits that you can take advantage of to reduce your tax liability. Here are some key considerations:

Standard Deductions: The Austrian government offers several standard deductions that can reduce your taxable income. These include the single-earner deduction, single-parent deduction, pensioner deduction, and transport deduction. For 2025, the amounts for these deductions are as follows:

• Single-earner deduction: €601
• Single-parent deduction: €601, plus an additional €212 for the second child and €268 for subsequent children
• Pensioner deduction: €1,002 for the standard deduction, or €1,476 for the higher amount
• Transport deduction: €487

• Professional and Personal Expenses: Austria allows deductions for various professional and personal expenses. For example, you can claim deductions for certain work-related expenses, such as transportation costs, professional fees, and union contributions. Additionally, you may be able to deduct personal expenses like health insurance, pension insurance, unemployment insurance, and accident insurance contributions.
• Social Security Contributions: Both employees and employers in Austria are required to contribute to social security. These contributions are tax-deductible and help fund various social safety nets. As an employee, you can deduct your share of social security contributions, which may include health insurance, pension insurance, unemployment insurance, and accident insurance.
• Special Expenses and Extraordinary Burdens: Austria recognizes that individuals may incur special expenses or face extraordinary financial burdens. These can often be claimed as tax deductions or credits. Examples of special expenses include medical expenses, disability-related costs, or expenses related to caring for dependents.
• Double Taxation Agreements: Austria has bilateral arrangements with numerous countries, including the United States, to prevent double taxation. These agreements ensure that you don't pay taxes on the same income in two different countries. If you have income sources in multiple countries, understanding these agreements can help you optimize your tax obligations.
• Tax Benefits for Researchers and Scientists: Austria offers generous tax benefits and allowances specifically for researchers and scientists coming to the country from abroad. This is part of the country's efforts to attract top talent in these fields. If you fall into this category, be sure to explore the available tax incentives.

By carefully reviewing the types of allowances and special expenses recognized by the Austrian tax system, you can effectively reduce your tax liability and pay less in taxes. It is always recommended to consult with a tax professional or advisor to ensure you are claiming all eligible deductions and following the latest tax regulations.

Know the different taxes for different goods

Austria has a progressive tax system, with rates ranging from 0% to 55% depending on income. There are various taxes levied on different goods and services in the country. Here is an overview of the different taxes applicable to various goods and services in Austria:

Value-Added Tax (VAT)

The standard VAT rate in Austria is 20%. This tax is levied on the supply of goods or services provided to customers by companies and individuals conducting business on a permanent basis, who are considered entrepreneurs for VAT purposes. Certain goods and services are taxed at reduced rates of 10% or 13%. These include food, public transport, restaurants, passenger transportation, books, medicine, hotel accommodation, animals, seeds, plants, cultural services, museums, zoos, film screenings, wood, ex-vineyard sales of wines, domestic air travel, public pools, youth care, and athletic events. Additionally, there are specific areas like Jungholz and Mittelberg, where a reduced VAT rate of 19% is applicable.

Excise Taxes

Austria levies excise taxes on certain luxury and specific consumer goods. This includes tobacco products, with tax rates ranging from 13% to 47% of the price, alcoholic beverages with varying tax rates depending on the type of alcohol, and certain energy products like petroleum, with taxes ranging from €40 to €600 per 1,000 litres.

Capital Gains Tax (CGT)

The CGT in Austria is typically 27.5% for most assets. For real estate properties acquired before April 1, 2002, the tax rate is 3.5% or 15% if reclassified as buildable land. For properties acquired after that date, the CGT rate is 25%.

Real Estate Tax

Austrian municipalities impose an annual real estate tax based on the assessed value of the property. The assessment base ranges from 0.1% to 0.2% of the assessed value, which is then multiplied by the assessment rate determined by each municipality, which can go up to 500%. The maximum annual amount of real estate tax is capped at 1% of the assessed value. Instalments are typically paid quarterly.

Social Security Contributions

Both employees and employers contribute to social security in Austria. These contributions include sickness insurance, accident insurance, unemployment insurance, and pension insurance. The rates for these contributions vary depending on factors such as employment type and residency status.

Municipal Tax

Businesses in Austria are subject to municipal tax, which is paid to the municipality where the business is located. The rate of this tax varies depending on the specific municipality. Additionally, employers may also be liable for other taxes, such as the Family Burdens Equalisation Levy and the municipal tax on payroll.

Frequently asked questions